On November 3, 2015, the Consumer Financial Protection Bureau (CFPB or the Bureau) released its Fall 2015 Supervisory Highlights. The Bureau estimates that its supervisory activity between May 2015 and August 2015 resulted in restitution of approximately $107 million. The Bureau states that its supervisory efforts "led to or supported six recent public enforcement actions, resulting in $764.9 million being returned to consumers and $50.7 million in civil money penalties." In addition to monetary requirements, other corrective actions stemming from the CFPB's supervisory activity may include, among other things, correction of information submitted to consumer reporting agencies (CRAs), creation and implementation of new policies and procedures, and cessation of particular practices.
Supervisory Focus:
The Fall 2015 Supervisory Highlights cover the Bureau's supervisory findings and observations in consumer reporting, debt collection, mortgage origination, mortgage servicing, student loan servicing, and fair lending. The CFPB also highlighted compliance with the Furnisher Rule (Regulation V) as an overarching issue that includes several of the specific supervisory focuses.
Consumer Reporting: The CFPB identified several issues pertaining to consumer reporting, including deficiencies in the policies and procedures addressing accuracy and integrity with respect to furnished information; notifying consumers regarding the results of direct disputes; inadequate adverse actions notices that "failed to include the name, address, and telephone number of the CRA that provided the information relied upon when the adverse action was taken"; and difficulty distinguishing between credit report disputes and general complaints, resulting in a failure to "monitor and track direct FCRA disputes they received from consumers and indirect FCRA disputes they received from CRAs."
Debt Collection: The CFPB noted several deficiencies in compliance with the Fair Debt Collections Practices Act (FDCPA) and the Furnisher Rule that raised supervisory concerns. These include:
- Failure to state that a call is from a debt collector
- Failure to implement consumer requests regarding communications
- Reasonable written policies and procedures under Regulation V
Mortgage Origination: The Bureau found that "supervised entities, in general, effectively implemented and demonstrated compliance" with the new mortgage origination rules. However, the CFPB did highlight compliance issues with these rules, as well as the Real Estate Settlement Procedures Act (RESPA), implemented by Regulation X; the Truth in Lending Act (TILA), implemented by Regulation Z; and consumer financial privacy rules, implemented by Regulation P. These compliance issues include:
- Failure to comply with the Regulation X tolerance rules for the Good Faith Estimate (GFE) and document GFE revisions
- Failure to fully comply with requirements for completion of HUD-1 settlement statements
- Failure to fully comply with requirements to provide homeownership counseling disclosure
- Failure to fully comply with the requirement to provide an accurate loan servicing disclosure statement
- Failure to fully comply with consumer financial information privacy requirements
- Failure to require employees engaged in loan originator activities to register with the NMLSR
- Failure to reimburse borrowers for understated APRs and finance charges
Mortgage Servicing: Mortgage servicing represented a "continuing concern" in the CFPB's Fall 2015 Supervisory Highlights. Specific issues noted by the Bureau include:
- Failure to maintain Regulation X-compliant servicing policies, procedures, and requirements that were reasonably designed to provide timely and accurate information, properly evaluate loss mitigation applications, and facilitate oversight of, and compliance by, service providers
- Failure to comply with Regulation X requirements for soliciting, completing, evaluating, and notifying borrowers of the outcomes of loss mitigation applications
- Failure to comply with the Homeowners Protection Act (HPA) requirements regarding borrower-paid private mortgage insurance (PMI)
- Violating the FDCPA by charging servicing fees not allowed by the mortgage agreement or by law and by failing to comply with the FDCPA's requirements for debt validation. The CFPB noted that "[m]ortgage servicers are generally debt collectors under the FDCPA if the loan was in default at the time the servicer obtained the loan."
Student Loan Servicing: The Bureau stated that it continues to evaluate student loan servicing, "primarily assessing whether entities have engaged in unfair, deceptive, or abusive acts or practices." According to the CFPB, "examiners have identified several unfair or deceptive acts or practices, as well as FCRA and Regulation V violations." These include:
- Allocating partial payments
- Issues involving payment systems
- Misrepresentations regarding dischargeability of student loans in bankruptcy
- Misrepresentations about late fees
- Inadequate Furnisher Rule policies and procedures, including:
- Policies and procedures that provide only cursory instructions to employees on how to handle investigations of consumer disputes
- Policies and procedures that do not address internal controls, such as verifying random samples
- Policies and procedures that do not consider periodic evaluations of the entities' practices, such as their investigations of disputed information, corrections of inaccurate information, means of communication, and other practices that may affect the accuracy or integrity of information furnished to CRAs, and procedures that do not include any documented and regular practice of reviewing exception reports from CRAs
Fair Lending: The Fall 2015 Supervisory Highlights outlined the process of a CFPB Fair Lending exam. The Bureau noted that many reviews of statistical disparities in underwriting outcomes did not find that the disparities were attributable to race, national origin, or some other prohibited basis characteristic. However, at least one review showed that the lender's underwriting practices violated the Equal Credit Opportunities Act (ECOA).
The CFPB stated that there are a number of steps that institutions can take to limit the risk of ECOA violations due to disparate outcomes in underwriting:
- Ensure that internal monitoring processes review underwriting practices for potential discrimination.
- Take steps to determine root causes of any disparities, including any factors that may be having a disparate effect on a prohibited basis, whether borrowers were wrongly declined, and whether illegal discrimination may have occurred.
- Take appropriate remedial action in the event that discrimination is identified, such as remunerating borrowers who were wrongly denied on a prohibited basis and re-offering credit.
- Ensure that policies and procedures given to loan officers have clear guidance with respect to:
- Making alternative product offerings to applicants and documenting the choice of a particular product
- Applying credit standards to reach underwriting decisions, and documenting the decision-making process
- Granting exceptions to credit standards, and documenting the justifications for the exceptions
The Supervisory Highlights provide a summary of the Bureau's enforcement action and regulatory guidance, in addition to the supervisory observations outlined above. Analysis of the Supervisory Highlights can yield insight into the CFPB's continuing regulatory and enforcement focuses.